The head and shoulders pattern is a technical analysis chart formation used to identify potential reversals in the trend of a stock or asset. It is a bearish reversal pattern that signals the end of an uptrend and the start of a downtrend. The pattern consists of three peaks with troughs between them, with the middle peak being the highest and called the "head". The two other peaks are called the "shoulders" and are roughly equal in height. The pattern is complete when the price breaks below the "neckline," which is drawn by connecting the lowest points of the two troughs. After the pattern is complete, the price typically breaks down and continues to fall.

To trade the head and shoulders pattern, traders can initiate a trade when the pattern completes, writing down the entry, stops, and profit targets as well as noting any variables that will change the stop or profit target. The breakdown at the end of a head and shoulders pattern occurs when the neckline is broken, and this breakdown should be convincing, occurring on strong volume and coinciding with momentum indicators pointing towards strong bearish momentum.

It is important to note that the head and shoulders pattern has its limitations, and it can be difficult to identify the pattern as it forms. Additionally, a strong trend sometimes causes the price action to continue in the same direction despite the third peak/low being a lower high or higher bottom, making the pattern a continuation pattern instead of a reversal pattern.